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Terms and Definitions

What is retroactive pay?

Updated: May 16, 2024

Retroactive pay definition and meaning

Retroactive wages are added to an employee’s paycheck to make up for a payment shortfall.  In the event that payments are calculated incorrectly, or are not paid on time, retroactive pay is owed to cover the difference between what was paid and what should have been paid. This is different then back pay, which is pay to make up for periods when the employee did not receive any compensation for work.

 

More about retroactive pay

There are other situations where workers could be entitled to retroactive pay. For instance, an employee might receive it if a raise or bonus is not applied in a timely manner. In addition, workers may also be owed pay if there is a delay in the payroll process or if an employee works overtime but isn’t paid the proper amount due for their extra hours.

 

In the event that overtime hours are calculated in the wrong workday, or that the workday itself is not defined in accordance with applicable labor laws – like weighted overtime, overtime pay based on the 8/80 rule for hospitals and nursing homes, or because of a change to the workweek schedule  – additional overtime pay may also be owed as retroactive pay.

 

Retroactive pay definition and meaning

 

Some additional examples of when retro pay may apply include:

 

  • Commissions: If earning commission is part of your compensation package, in some cases the client from which the commission is generated may be late in paying. This in turn, may cause your compensation to be delayed during a particular pay period. As a result, the commission may be paid retroactively during a subsequent pay period.
  • Shift differentials: Some workplaces pay different wages depending on the shift the employee works. For instance, a graveyard (overnight) shift may pay more than a standard daytime shift. If you forget to record working a different type of shift than you normally do on your timecard, the pay differential may not be calculated. In such cases, you would have to be paid the differential retroactively.

 

As a best practice, employers should provide the employee with an explanation of why they are receiving retroactive pay, as well as the amount they’ll receive, and when to expect this pay. Employees will usually receive retroactive pay as a single payment, or lump sum. This payment may be remitted as a check or by direct deposit, and does not need to align with a typical payday. This payment can not be converted to a fringe benefit, or any other such compensation.

 

Using retroactive pay in a sentence:

“I worked the late shift last week, which pays an extra $15 per hour. But because I forgot to record it on my timecard properly, I am being paid the extra hourly income as retro pay and will receive it during the next pay period, not during this current pay period.”

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